SPIVA Scorecard (S&P Indices Versus Active)

The SPIVA Scorecard is a widely cited, semi-annual report from S&P Dow Jones Indices. Think of it as the official referee in the epic brawl between two investment styles: active management and passive management. Active management is where a fund manager (a supposed guru) actively picks stocks, trying to beat the market. Passive management simply aims to match the market's performance by tracking a benchmark index, like the S&P 500. The SPIVA report rigorously compares the performance of thousands of actively managed funds across various categories (e.g., U.S. large-cap, European equity) against their appropriate S&P benchmarks. It answers a simple but crucial question for every investor: “Are the highly-paid professionals I'm hiring to manage my money actually earning their keep?” The report's findings are often a sobering reality check, providing invaluable data for anyone deciding between a hands-on or hands-off investment approach.

The message from virtually every SPIVA report is brutally clear and consistent: most active fund managers fail to beat their benchmark index. This isn't just a one-off result; it's a recurring theme observed over short, medium, and long-term periods (1, 3, 5, 10, and 15 years). As the time horizon lengthens, the percentage of underperforming managers typically gets even higher. For instance, it's common to see that over a 10-year period, 85% or more of U.S. large-cap active funds lag the S&P 500. The report also highlights the danger of survivorship bias. Many underperforming funds don't just do poorly; they close down or merge with other funds, disappearing from the data. SPIVA accounts for these “fallen soldiers,” giving us a much more accurate picture of the active management battlefield than studies that only look at the funds that survived. It essentially shows that picking a winning active fund for the long run is not just difficult; the odds are stacked heavily against you.

It’s not necessarily that fund managers are bad at their jobs. The deck is just stacked against them due to some powerful, unassailable forces.

This is the biggest culprit. Active funds charge higher fees to pay for the managers' salaries, research teams, and trading costs. This is all wrapped up in a fund's expense ratio. Imagine an index returns 8% in a year. A low-cost index fund tracking it might charge a 0.05% fee, leaving you with a 7.95% return. An active fund manager in that same market might also achieve an 8% return before fees. But after their 1% fee, your return is only 7%. The manager has to be a genius just to match the index after costs, let alone beat it consistently.

As the legendary John Bogle explained, the stock market is a giant casino. Before costs, investing is a zero-sum game. For every dollar of outperformance one investor earns relative to the market average, another investor must underperform by a dollar. All investors, as a group, are the market, so their average return is the market return. But once you factor in the “house rake”—the fees, commissions, and trading costs—it becomes a loser's game. The average active investor, after paying these costs, must underperform the market. It's simple arithmetic.

So, should we all just give up and go home? Not at all. The SPIVA Scorecard is not an indictment of intelligent investing; it's an indictment of the active fund management industry. For a value investor, this report provides two powerful lessons.

• Humility and the Power of Indexing: The data provides a strong argument that for the majority of people, the most reliable path to building wealth is through low-cost passive investing in an ETF (Exchange-Traded Fund) or index fund. Even Warren Buffett has instructed that the money left for his wife be invested 90% in a low-cost S&P 500 index fund. It’s the smart, simple, and high-probability choice.
• The High Bar for Active Investing: The SPIVA results don't mean beating the market is impossible, just that it's exceptionally rare. If you choose to be an active investor yourself—not by picking a fund, but by picking individual stocks—you must understand the odds. You can't be an average investor. You must have a sound intellectual framework (like value investing), the emotional discipline to ignore the market's madness, and a relentless focus on buying great businesses at a significant margin of safety. The SPIVA Scorecard reminds us that to win a loser's game, you have to play a completely different game from the crowd.